Current Trends in Philanthropy: The Big Picture

October 29, 2018

"Philanthropy" in the United States is a vast industry composed of individuals, foundations, and corporations that, in 2017, contributed $410 billion to charitable causes, an amount roughly equivalent to 2 percent of gross domestic product.

Of this total, nearly 70 percent is contributed by individuals, with more than half of that comprised of giving to congregations. The second largest source of philanthropic giving (some 24 percent) comes from grants made by private foundations like Gates, Ford, and Hewlett, which, along with a few dozen other major foundations, dominate a diverse ecosystem populated by tens of thousands of foundations of all sizes. Third is bequests, through which people designate universities, hospitals, and other tax-exempt organizations as beneficiaries in their wills. And last comes corporations — a surprise to many observers, who, given the dominant position of the private sector in the U.S. economy, no doubt assume that businesses play a far greater role in philanthropy.

My organization, Foundation Center, compiles comprehensive data on the more than 87,000 active U.S. foundations and, working with partners around the world, a growing number of foundations and foundation-like organizations in Europe, Asia, and Latin America. The center envisions a world enriched by the effective allocation of philanthropic resources, informed public discourse about philanthropy, and broad understanding of the contributions of nonprofit activity to transform lives and increase opportunity for all.

We also see U.S. philanthropy as having arrived at a critical juncture. Buoyed by a strong economy, U.S. foundations find themselves navigating a complex landscape in a volatile and highly polarized political environment. Foundations have something valuable to contribute in this environment — namely, flexible resources free from market, electoral, and fundraising pressures. How they choose to use those resources to advance their work over the next few years is of interest to most Americans.

In a series of blog posts to be published over the next few weeks, we will look at some of the emerging issues that are getting the attention of U.S. foundations and will consider a number of frameworks (e.g., the Sustainable Development Goals) that are shaping the flow of philanthropic resources to different parts of the world. We'll also examine a variety of modalities — from traditional grant funding to experimentation with crypto-currencies — that foundations are using to advance their missions.

As many of you are aware, a growing chorus is questioning the foundation model, even as some donors are looking to experiment with new forms of philanthropy. A handful of younger philanthropists (Mark Zuckerberg, Pierre Omidyar) have opted to create limited liability corporations instead of setting up private foundations and have declared that their investments in social good will be directed to a broad spectrum of organizations and vehicles, not just tax-exempt nonprofits. Still, the predominant organizational form for U.S. philanthropy is the private grantmaking foundation, followed by corporate, operating, and community foundations. These legal structures and the regulatory framework in which they are embedded provide considerable flexibility for experimentation and innovation, and their continued popularity suggests that, for now at any rate, the "new philanthropy" is more of a rhetorical device than an actual phenomenon.

General Trends in U.S. Grantmaking: Subject Areas and Support Strategies

Notwithstanding the growth and innovation that characterizes twenty-first-century philanthropy, a number of its hallmarks persist. U.S. foundations have long prioritized funding in the areas of health and education, and that continues to be the case. Of the $69 billion awarded by U.S. foundations in 2016, roughly 30 percent went to health-related causes or organizations, while 25 percent went to education. Indeed, these two areas have accounted for roughly half of all U.S. foundation grantmaking (by dollars) for as long as Foundation Center has collected this kind of data, going back to the 1960s.

U.S. foundations also have long prioritized program support over general operating support. In 2016, just over 40 percent of the grant dollars awarded provided support for specific programs, with general operating support accounting for 20 percent. But persistent calls for change by nonprofit organizations and philanthropic watchdog groups over the past fifteen years have resulted in a steady, albeit gradual, increase in the amount of general operating support provided by foundations. Between 2002 and 2008, for example, general operating support accounted for 16.5 percent of total giving, while more recently (2009-2015) general operating support has averaged 19.8 percent of total giving on an annual basis.

The two population groups that tend to benefit the most from U.S. foundation giving are the economically disadvantaged and children and youth, capturing 39 percent and 20 percent of grant dollars, respectively, in 2016. Support for the economically disadvantaged in particular has grown over the past ten to fifteen years, up from 20 percent of total grant dollars in 2005 — a near doubling, on the face of it, of grant dollars targeting this population group. It's more likely, however, that U.S. grantmakers have become more intentional in targeting the intended beneficiaries of such grants. In other words, socioeconomic status has become a more frequently-used lens through which foundations make decisions about where and how to direct their giving. While a growing number of advocacy groups have been encouraging grantmakers to also employ gender and racial equity lenses in their grantmaking decisions, there is less evidence to suggest that foundations are doing so. It will be interesting, over the next few years, to see whether that changes.

Funding for Nonprofit and Philanthropic Infrastructure

This is an area of special interest to Foundation Center, which has been a critical part of the infrastructure for philanthropy for six decades. First, some background.

The nonprofit sector contributed more than $930 billion to the U.S. economy in 2014, according to data compiled by the National Center for Charitable Statistic. Nonprofit organizations — of which there are more than a million in the U.S. — work to address a broad range of issues — and employ an array of creative strategies in doing so. Given the sector's size and complexity, a substantial set of supporting organizations have emerged over time to assist them in that work. These organizations (generally nonprofits themselves) provide increasingly essential services to the field, including strategic planning, evaluation and assessment, board and staff development, data and research, legal services, and business modeling.

Infrastructure organizations (like Foundation Center) can be grouped into three main categories:

Philanthropy-focused organizations and networks provide services primarily in support of the work of foundations and other philanthropic entities.

Nonprofit-focused organizations and networks provide services in support of the work of nonprofit organizations or the nonprofit sector in general.

Multi-sector organizations provide services in support of the work of organizations both within and beyond the social sector.

The continued viability of these organizations (especially those in the first two groups) relies heavily on the support of the philanthropic sector. A 2018 study conducted by Foundation Center found that U.S. foundations contributed $1.94 billion dollars in support of the nonprofit and philanthropic infrastructure between 2004 and 2015 — about 0.7 percent of all foundation giving over that period.

The need for infrastructure has grown as the work of philanthropy has grown in complexity. U.S. philanthropy has become more global, more strategic, more focused on impact, and more collaborative. Outside the U.S., philanthropy has expanded rapidly, as has the global philanthropic infrastructure, with half of all non-U.S. infrastructure organizations founded after 2000.

Support for philanthropic infrastructure, however, has not kept pace with changes in the field. Between 2004 and 2015, total giving by U.S. foundations rose 66 percent, while giving for infrastructure organizations grew just 25 percent. And since 2004, funding for non-U.S. infrastructure organizations has declined some 43 percent.

It is perhaps fair to ask whether U.S. funders should continue to shoulder the majority of the burden to support non-U.S. infrastructure organizations (beyond membership fees), as they have since the founding of the European Foundation Centre in 1989. This is a critical time in the development of the global philanthropic infrastructure, however, and outside the U.S., that infrastructure is poorly resourced even as the demand and need for it increases.

In my next post, I'll take a look at some of the current trends in international grantmaking by U.S. foundations. In the meantime, feel free to comment below and/or drop me a note (ltm@foundationcenter.org) with your questions.

Larry McGill is vice president of knowledge services at Foundation Center. Foundation Center would like to thank the King Baudouin Foundation for support that helped make this series possible.